Highly indebted Greentown China and another mainland developer are to sell a prime development site in Shanghai to Soho China for 2.13 billion yuan (HK$2.6 billion) in the face of a credit crunch.

Soho China said it had entered into a framework agreement to acquire the entire interest in Greentown Plaza Development, of which 70 per cent is ultimately owned by Greentown China and the remaining 30 per cent held by Maanshan Development.

Greentown Plaza Development is responsible for the development of an office, hotel and commercial project at Tianshan Road in the Changning district. The site will generate a total gross floor area of 172,208 square metres of offices and commercial uses.

In a company statement to the Hong Kong stock exchange, Greentown said the estimated gain on the property disposal was 200 million yuan. Greentown expected 'the disposal would improve the gearing level and the financial position' of the company.

In March, Greentown said it had total borrowings amounting to 32.1 billion yuan. Its net gearing ratio was 148.7 per cent as of December, up from 132 per cent a year earlier.

Last year, Greentown generated a total of 3.23 billion yuan in cash flow from the disposal of five projects.

The sale comes after Hangzhou Glory Real Estate became the first developer to file for bankruptcy since the central government introduced curbs on the housing market last year.

Fitch Ratings said the recent bankruptcy filing by Hangzhou Glory Real Estate, a comparatively small homebuilder focused on the high-end residential market in Hangzhou, illustrated how restrictive regulations continued to polarise the mainland property market between large and small players.

'Lower property prices and sales volumes - the consequence of restrictive regulatory policies - are hurting profit margins and cash flow generating ability. This means the homebuilding sector remains highly challenging for the smaller local and regional operators such as Hangzhou Glory, which have neither the scale nor liquidity to ride out the slow-down,' it said.

However, big players such as cash rich Soho China have taken advantage of the market downturn to build up their land banks.

Upon the completion of this deal, the group would have made acquisitions of about 25.5 billion yuan in Shanghai. With a cash reserve of 12 billion yuan, Soho China chairman Pan Shiyi said the company would continue its acquisitions in the city.

He said the price tag for the Tianshan Road project represented 19,800 yuan per square metre. 'It is a reasonable price,' he said.

He expects the project could achieve a selling price of at least 65,000 yuan per square metre when it is put on sale in two or three years.

It will be the 11th project Soho China has acquired in Shanghai since the company entered the city in August 2009, and its second acquisition in the city this year.

He said the group had generated 1.6 billion yuan in sales revenue in the first quarter.

Shares of Greentown fell 0.53 per cent to HK$5.60, while Soho shares dropped 0.33 per cent to HK$5.89. The Hang Seng Index declined 0.23 per cent to 20,562.31 points.